Do you always read the fine print on your credit card statement? If you don’t, this will make you sit up. Most banks have quietly increased monthly finance charges on their credit cards by up to 0.5 percentage points per month. That’s a big hit, considering that many consumers are already reeling under rising costs of home and other loans they have taken.
<b1>From a standard 2.95 per cent per month that most banks used to charge a year ago, the finance charge for leading credit card operators has gone up to between 3.1 and 3.5 per cent per month. The rates could go up further, experts said. “Several private sector banks are reviewing their finance charges for further revision driven by the current inflationary environment and credit squeeze,” said an industry insider.
Starting June 1, ICICI Bank has revised the monthly finance charges on its credit cards — 3.4 per cent on blue silver and gold cards and 3.15 per cent on platinum card. ABN AMRO is charging 3.5 per cent as finance charge on all cards. Citibank, HSBC and Standard Chartered are also charging similar rates.
Even Barclay, which is a new entrant in the credit card business in India and is trying to undercut existing players with lower rates, has fixed its finance charge at 3.1 per cent. HDFC Bank seems to be an exception. It has not revised its rates, but few expect it to hold on for long.
Pricing on cards depends more on investor’s payment discipline. Interest rates may go up if defaults are on the rise.
Credit card users, who have been paying the minimum amount of 5 per cent on the outstanding bill and carrying forward the remaining amount, will have to practice caution as they might get trapped into a vicious debt cycle. At an interest rate of 3.5 per cent per month a credit card customer ends up paying up at compounding annual rate of 51 per cent against 42.5 per cent that he used to pay annually at 3 per cent per month.